From a newsletter dated 5/12/1997 written by Jay Shartsis of R.F. Laffery & Co..

1974 – What does a real market bottom feel like?
http://www.box.net/shared/ziq3ip0cgs

During the 1974/75 recession, asset prices of households and businesses ROSE. This time they’re falling. Equity prices fell 48% in 21 months, the value of corporate assets, from 1972 to 1974 rose 35%!! From 2007 to 2008 they fell 3%.

Equities fell about the same %, and in each case the Q ratio was around .9 at the market top, but at the 1974 bottom it was half (ca .3) what is was in 2008 (ca .6, close to the long term average).

This mindless comparing of graphs is really silly.

It seems that many of us (the dumber ones – yours truly included), have been kicked in the ass by these ULTRASHORT ETF’s (FAZ – SRS – etc.)…

I’ll tell you something though…I’m simply going to hold onto the SRS for as long as possible and see where it goes…If it goes to zero…screw it (its just a small piece anyway)…Think about it, if you use SPG as a proxy (the largest and most respected component or CRE indices), it’s trading at a 6.0 PEG ratio and over 30 P/E…Now I know you can generally toss out numbers like that, but tell me where the “G” is going to come from in the future…Donald Trump himself says he can’t get financing for anything commercial, and the consumer is tapped out…Unless the “anchor” stores (like Nordy’s & JC Penney decide to buy up all the sq/ft. and pay 2006 prices for them, I see SPG and others going the way of General Growth…And the “G” didn’t work out for them all that well did it?

I’ll give you a DIFFERENT perspective on the 2x ETF (that the ‘mathies’ may have figured out awhile back)…Think about it…it’s “directional”…There are TWO different aspects of “directional” on an “x” & “y” matrix (time and amplitude)…If you do a comparison on SPG to SRS in the short term, the numbers are skewed, but over longer timeframes, they actually do converge and revert to a mean…To give you a START on that I’ll use the following dates…OCTOBER ’07 HIGH (SRS around 72)…SRS absolute high…(for fun let’s call it 216 because the “spike” higher was an anomality)…So you had a 3x move peak median to peak during the market selloff…Over time, you’d expect to have a -3x median to trough move off a 72 base…72 divided by 3 = 24…Now these numbers aren’t exact…If you wanted to get wild and wooly, you could say that the SRS peaked at 273 on 11/21/08…That’s almost a 3.8x multiple…So let’s say the decline could have the same amplitude (72 divided by 3.8 equals 18.94)…

What I’m saying is this…And trust me, I don’t know if my theory is going to be correct or not…But I’d say that we’d be looking at 15.00 – 19.00 as the ultimate spike bottom for the SRS…You could arrive at that range another way…Let’s say that SPG decides to go up and “technically” visit it’s 200 day MA (even though old “Goldy” has the habit of taking it off its conviction buy list at $46)…Well, that’s another 13% move off its recent peak…So if you 2x that and calculate the impact LOW on SRS…You’d put yourself in the same range ($15.54 to be exact – but even that print would only be a brief blowout, unless you think even the “Goldy” conspirators are going to bid up the SPG to it’s all time highs…

Again, this is all a THEORY…But THAT’s why I’m holding on to my stupid little SRS position even though the price is WAY DOWN off my cost basis…At $21…I’m looking at maybe another 30% loss (say if I entered here and/or committed ZERO more capital to the position)…But a reversion to mean (over time based on when the market corrects and/or when even “Goldy” decides it would rather buy GOOGLE with a 1.1 PEG instead of SPG at a 6.0 PEG), says that as a the market eventually puts in a bottom (which means SPG either does a fibonacci retracement off it’s lows, does a full retest, or actually breaks lower – which I think is possible)…You’re looking at a move back to somewhere between 45-72 on SRS (and “gravy” on top of that if somehow the market REALLY tests the bottom when Congress is on recess, Obama is in Hawaii, and Bernanke is in Jackson Hole, or whatever the hell he does when he’s not printing money – let’s call that date MID-AUGUST)…

So I don’t know…I can take buying at $21…sucking up a 25% loss…then selling at a double or triple if the planets align…

It’s just an experiment…

For all of you who are reading my words for the first time…I appreciate your patience…This was kind of long winded…I’ve had PASSWORD RESOLUTION issues trying to post here b4 but hopefully now that’s resolved…

I READ “all” of your comments (and have mentally categorized you REGULARS)…I think you ALL are very bright and I enjoy your insights and anecdotes…

CV

That does seem to be the plan.

1975 maybe?